South Korea's economic growth slows to 3.9 percent

South Korea's economic growth slowed in the third quarter to its lowest level in three years as construction contracted and a global slowdown hit manufacturing and exports.

The Bank of Korea, the country's central bank, said Friday that gross domestic product grew 3.9 percent in the three months through September compared with the same period a year earlier, its worst performance since Asia's fourth-largest economy expanded 3.4 percent in the second quarter of 2005.

South Korea reported growth of 4.8 percent in the second quarter of this year.

The slowdown comes as an unfolding global financial crisis sends shockwaves through world markets and threatens to drag major economies into recession. South Korea's stock market and currency have slumped and the government and central bank have been forced to shore up the banking system and construction sector.

"Everything is bad," Citibank Korea economist Oh Suk-tae said of the numbers. "The weakness in exports and (the) manufacturing sector clearly shows the impact of the global economic slowdown."

Manufacturing and export growth slowed "mainly due to the sluggishness in cars, semiconductors and computers," the bank said in a statement. Growth in the services sector also weakened.

The central bank also said the economy expanded 0.6 percent in the third quarter from the second, the weakest since it grew 0.5 percent in the third quarter of 2004. The economy expanded 0.8 percent in the second quarter of this year.

Citibank's Oh and Lim Ji-won, economist at J.P. Morgan in Seoul, said the third quarter's 0.6 percent figure equated to an expansion of 2.3 percent at an annual pace. The Bank of Korea does not release an annualized figure.

Compared with the same period last year, exports of goods slowed to 8.1 percent growth in the third quarter from the second quarter's 12.5 percent, the bank said. Exports, however, contracted 1.8 percent when compared with the previous quarter.

Construction contracted 0.3 percent from the year before. The component grew quarter on quarter, though the bank attributed the increase to a technical factor.

South Korea's benchmark stock index plunged 10.6 percent to 938.75 closing below 1,000 points for the first time in more than three years.

Friday's drop pushed the Korea Composite Stock Price Index to its worst week weekly fall _ 20.5 percent _ since records began to be kept in 1987, according to the stock exchange.

The Kospi has fallen 50.5 percent this year, while the South Korean won has declined 34.2 percent against the U.S. dollar in 2008.

On Sunday, South Korea announced a $130 billion plan to shore up the nation's financial system, including a three-year guarantee for offshore loans domestic banks take out through June 2009. The plan will also use some of Seoul's foreign currency reserves to pump more money into the banking system.

The government announced Tuesday that it will spend a total of about 5 trillion won ($3.5 billion) to support troubled construction companies by purchasing land and unsold apartments.

J.P. Morgan's Lim said that while further weakness in exports is expected in coming quarters, the sharp decline in the South Korean won should help alleviate somewhat.

"The currency competitiveness impact should continue," she said, helping South Korea in particular against regional competitors such as Japan, where the yen traded Friday at a 13-year high against the dollar.

South Korea is led by major exporters including Samsung Electronics Co., LG Electronics Inc. and Hyundai Motor Co. A weaker won can make their products cheaper in overseas markets and more attractive to consumers there.

Economists predicted that South Korea's economy, which grew 5 percent in 2007, will slow this year and next amid the global slowdown.

Citibank's Oh said South Korea will manage an expansion of 4.2 percent this year but just 2.2 percent in 2009. Lim sees growth of 4.3 percent in 2008 and 3 percent next year.